💻 Microsoft: AI Inflection
AI consumer products are coming but History is on Apple's side
Welcome to the Tuesday edition of How They Make Money.
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In case you missed it:
Microsoft CEO Satya Nadella recently teased new AI devices:
“With Copilot, we have an opportunity to create an entirely new category of devices, purpose-built for this new generation of AI. […] In just a few weeks, we’ll hold a special event to talk about our AI vision across Windows and devices.”
Apple CEO Tim Cook also hinted at exciting AI announcements at WWDC in June. This sets the stage for a showdown, but can Microsoft overcome its challenging history of consumer products (like Windows Phone or Bing)?
As stated by Mark Twain, History doesn’t repeat itself, but it often rhymes.
In March, Nadella announced that Deepmind and Inflection AI co-founder Mustafa Suleyman would become CEO of Microsoft AI and focus on consumer products like Copilot, Bing, and Edge.
We have a great earnings breakdown for you today, visualizing the latest trends across Azure, Copilot, and the new Xbox strategy.
Today at a glance:
Microsoft Q3 FY24.
Consumer AI, Xbox strategy.
Earnings call takeaways.
Copilot and the Office advantage.
1. Microsoft Q3 FY24
As a reminder, Microsoft ends its fiscal year in June. So yes, it’s already Q3!
Microsoft completed its purchase of Activision Blizzard in October 2023. Excluding the acquisition, the company grew overall revenue by 13% Y/Y.
Azure—Microsoft’s cloud computing platform and infrastructure—is included in ‘Server products and cloud services.’ Management shares Azure's growth rate but doesn’t disclose the exact revenue number.
☁️ Server products and cloud services $24.8 billion (+24% Y/Y).
📊 Office products and cloud services $13.9 billion (+12% Y/Y).
🎮 Gaming $5.5 billion (+51% Y/Y), including Activision Blizzard.
🪟 Windows $5.9 billion (+11% Y/Y).
👔 LinkedIn $4.0 billion (+10% Y/Y).
🔎 Search and news advertising $3.1 billion (+3% Y/Y).
🔒 Enterprise and partner services $1.9 billion (-9% Y/Y).
📈 Dynamics $1.6 billion (+19% Y/Y).
💻 Devices $1.1 billion (-17% Y/Y).
Let’s turn to the three core business segments.